What changed in this filing

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Item 1. Business

2022-02-07 compared with 2021-02-08 · 167 added, 152 removed, 333 unchanged (49% of the section changed)

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Fastenal Company (together with our subsidiaries, hereinafter referred to as 'Fastenal' or the company or by terms such as we, our, or us) began as a partnership in 1967, and was incorporated under the laws of Minnesota in 1968.

We opened our first branch in 1967 in Winona, Minnesota, a city with a population today of approximatel y 27,000.

We began with a marketing strategy of supplying threaded fasteners to customers in small, medium-sized, and, in subsequent years, large cities.

Over time, that mandate has expanded to a broader range of industrial and construction supplies spanning more than nine major product lines (described later in this document).

We opened our first branch in 1967 in Winona, Minnesota, a city with a population today of approximately 26,000.

We began with a marketing strategy of supplying threaded fasteners to customers through a branch network in small, medium-sized, and, in subsequent years, large cities.

Over time, that mandate has expanded to a broader range of industrial and construction supplies spanning more than nine major product lines.

How we engage with our customers has similarly evolved to include Onsites, Fastenal Managed Inventory and eCommerce.

We provide additional descriptions of our product lines and market channels later in this document.

The large majority of our transactions are business-to-business, though we also have some walk-in retail business.

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We engage our customers primarily through branch and Onsite locations.

Branches and Onsites exist very close to our customers, usually within miles in the case of the former and most often within our customers' physical locations in the case of the latter, and together constitute our ‘in-market’ network.

Many of our customers engage with us through e-commerce, but most of our sales through this channel are with customers that use e-commerce to supplement our service through our other channels.

Branches and Onsites exist very close to our customers, usually within miles in the case of the former and most often within or immediately proximate to our customers' physical locations in the case of the latter, and together constitute our 'in-market' network.

Many of our customers engage with us through eCommerce, but most of our sales through this channel are with customers that use eCommerce to supplement our service through our other channels.

The following table shows our consolidated net sales for each of the last ten fiscal years;

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Net sales $ 6,010.9 5,647.3 5,333.7 4,965.1 4,390.5 3,962.0 3,869.2 3,733.5 3,326.1 3,133.6

Public branches 2,003 2,114 2,227 2,383 2,503 2,622 2,637 2,687 2,652 2,585

Branch locations 1,793 2,003 2,114 2,227 2,383 2,503 2,622 2,637 2,687 2,652

Branch revenue (1)

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While such locations have existed since 1992, we did not specifically track their number until we identified our Onsite program as a growth driver in 2014.

(4) This portion of revenue is generated outside of our traditional in-market location presence, examples of which include our custom in-house manufacturing, revenues arising from our leased locker arrangements, and other non-traditional sources of revenue.

(5) 'In-market locat ions' is defined as the sum of the total number of public branches and the total number of Onsite locations.

(4) This portion of revenue is generated outside of our traditional in-market location presence, examples of which include revenues arising from our custom in-house manufacturing, industrial services, leased locker arrangements, and other non-traditional sources of revenue.

The significant increase in other revenue in 2020 largely reflects the onset of the COVID-19 pandemic in that period and the substantial sales of pandemic-related products that we direct-shipped (versus selling through our in-market locations) as a means of delivering critical supplies more quickly.

The decline in other revenue in 2021 largely reflects the absence of such direct-shipped revenue as the supply chain for such products stabilized.

(5) 'In-market locat ions' is defined as the sum of the total number of branch locations and the total number of Onsite locations.

This structure has evolved over time as a result of one of Fastenal's guiding principles since inception:

that we can improve our service by getting closer to the customer.

Through much of our history, this was achieved by opening branches, and more recently, through new Onsite locations.

This has been achieved by opening branch locations and, more recently, Onsite locations.

Today we believe there are few companies that offer our North American in-market location coverage.

In 2020, roughly 54% of our sales an d 52% of our in-market locations were in major Metropolitan Statistical

Areas (MSAs);

(populations in the United States and Canada greater than 500,000 people), while 20% of our sales and 18% of our in-market locations were in small MSAs (populations under 500,000 people), and 26% of our sales and 30% of our in-market locations were not in an MSA.

In 2021, roughly 52% of our sales and 50% of our in-market locations were in major Metropolitan Statistical Areas (MSAs) (populations in the United States and Canada greater than 500,000 people), while 21% of our sales and 19% of our in-market locations were in small MSAs (populations under 500,000 people), and 27% of our sales and 31% of our in-market locations were not in an MSA.

In our view, this has proven to be an efficient means of providing customers with a broad range of products and services on a timely basis.

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Since Fastenal's founding and through 2013, traditional branch openings were a primary growth driver for the company, and we experienced net openings each year over that time span.

However, new growth drivers, business models, and business tools (Onsite, vending, digital solutions) have emerged and diminished the direct role of traditional branch openings in our growth.

However, new growth drivers, business models (Onsites), and business tools (digital solutions) have emerged and diminished the direct role of traditional branch openings in our growth.

Traditional branches were entirely U.S.-based until 1994, when we opened our first location in Canada.

At the end of 2020, we had 1,868 traditional branches in the United States and Canada, and they represented 58.6 % of to tal sales.

At the end of 2021, we had 1,649 traditional branches in the United States and Canada, and they represented 56.8% of total sales.

Traditional branches are also differentiated by their operating styles.

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The choice of operating style is made by local leadership and is based on local market considerations.

At the end of 2021, 35% of our traditional branches operated as a CSB and 65% operated as a CFC.

2.) An 'international branch' is the format we typically deploy outside the United States and Canada.

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Our go-to-market strategy in countries outside of the United States and Canada focuses primarily on servicing large, national account customers disproportionately concentrated in manufacturing.

From a product perspective, these customers are more heavily oriented toward planned fastener spend, though non-fastener MRO spend is becoming more common in these markets.

From a product perspective, these customers are more heavily oriented toward planned fastener spend, though non-fastener manufacturing, repair, and operations (MRO) spend is becoming more common in these markets.

Despite strong growth in our international business in recent years, we are not as well recognized in many of our locations outside of the U.S.

and Canada as we are in the U.S.

However, our ability to provide a consistent service model, including vending, bin stocks, and Onsites, on a global basis is attractive to our foreign customer base, much of which are the foreign operations of North American-based companies.

However, our ability to provide a consistent service model, including vending, bin stocks, and Onsites, on a global basis is attractive to our customer base, much of which are the foreign operations of North American-based companies.

At the end of 2021, we had 144 international branches operating outside the U.S.

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We will continue to open traditional branches as the company sees fit.

However, in each year since 2013, the company has experienced a net decline in its total branch count including net declines of 111 branches in 2020, 113 branches in 2019, and 156 branches in 2018.

However, in each year since 2013, the company has experienced a net decline in its total branch count including net declines of 210 branches in 2021.

Our total decline since 2013 is 894 branches.

Onsite locations may influence the trend in our traditional branch count over time, but are not the primary reason for our traditional branch closings.

Onsite locations may influence the trend in our traditional branch count over time, but have not been the primary reason for our traditional branch closings.

The Onsite concept is not new, in that we entered into the first such arrangement in 1992.

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We have identified over 15,000 manufacturing and construction customer locations in the United States with potential to implement the Onsite service model.

These include customers with which we have an existing national account relationship today, as well as potential customers we are aware of due to our local market presence.

However, as awareness of our capabilities has grown, we have identified additional Onsite potential with certain agencies of state, provincial and local government customers and academia.

These include customers with which we have an existing national account relationship today, and potential customers we are aware of due to our local market presence with which we do not have a meaningful relationship today.

However, as awareness of our capabilities has grown, we have identified additional Onsite

potential with certain agencies of state, provincial and local government customers and academia.

We also believe as we follow our existing national account customers outside the United States our market potential for Onsite solutions will continue to expand.

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We expect revenues from Onsite arrangements to increase meaningfully over time.

We experienced net increases of 151 , 220, and 289 Onsite locations in

2020, 2019, and 2018, respectively, and signed 223, 362, and 336 new Onsite locations in 2020, 2019, and 2018, respectively.

We had 1,265 Onsite locations as of December 31, 2020, and they represented 26.3% of total sales.

We believe the marketplace can support 375 to 400 new Onsite signings annually, and our goal in 2021 is to sign that many locations.

However, we recognize that achieving the goal will be challenging, as the continued prevalence of COVID-19 infections has made gaining access to customer facilities and decision-makers difficult.

We believe the profitability of our in-market locations is affected by the average revenue produced by each site.

In any in-market location, certain costs related to growth are at least partly variable, such as employee-related expenses, while others, like rent and utility costs, tend to be fixed.

As a result, it has been shown that as an in-market location increases its sales base over time it typically will achieve a higher operating profit margin.

This ability to increase our operating profit margin is influenced by:

(1) general growth based on end market expansion and/or market share gains, (2) the age of the in-market location (new locations tend to be less profitable due to start-up costs and, in the case of a traditional branch, the time necessary to generate a customer base), and/or (3) rationalization actions, as in the past several years we have seen a net decline in our traditional branch base.

There are many reasons why local or regional management might decide to close a location.

Key customers may have migrated to a different part of the market, factories may have closed, our own supply chain capabilities in a market may have evolved to allow us to service some areas with fewer traditional branches, and/or our customers may have transitioned to our Onsite model.

An Onsite may also close because local or regional management determines that the business at the location is unlikely to scale sufficiently to justify our being on premise, in which case the relationship often reverts to being managed in a local traditional branch.

The paths to higher operating profit margins are slightly different in a traditional branch versus an Onsite location, as the former will tend to have more fixed costs to leverage while the latter will tend to have a smaller fixed cost burden but have greater leverage of its employee-related expenses.

In the short term, the Onsite program can hurt the profitability of our existing branch network as it can pull established revenue away from an existing branch even as its fixed expenses are largely unchanged.

The following table provides a summary of the public branches and Onsite locations we operated at the end of each year, as well as the openings, closings, and conversions during each year:

We had 1,416 Onsite locations as of December 31, 2021, and they represented 31.6% of total sales, and signed 274, 223, and 362 new O nsite locations in 2021, 2020, and 2019, respectively.

We believe the marketplace can support 375 to 400 new Onsite signings annually.

We did not achieve that level of signings in 2021, 2020, or 2019 as certain market variables, including the ongoing COVID-19 pandemic, supply chain constraints, and labor shortages created challenges in our ability to engage with key decision makers and caused many of our customers to focus on short-term crisis management rather than long-term strategic planning.

These conditions remain in force at the beginning of 2022.

It is our intention to sign 375 to 400 new Onsites in 2022, though achieving this may require some relief in the factors described above.

The following table provides a summary of the branches and Onsite locations we operated at the end of each year, as well as the openings, closings, and conversions during each year:

North America Outside North America

United States Canada Mexico & Caribbean (1) Subtotal Central & South America

United States Canada Mexico & Caribbean (1)

Subtotal Central & South America (2)

Subtotal Total

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(1) Mexico, Puerto Rico, and Dominican Republic

(2) Panama, Brazil, Colombia, and Chile

(2) Panama, Brazil, and Chile

(3) Singapore, China, Malaysia, and Thailand

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(5) The net impact of non-in-market locations or Onsite locations converted to branches, branches converted to Onsite locations or non-in-market locations, and closures of branches or Onsite locations.

We believe the profitability of our in-market locations is affected by the average revenue produced by each site.

In any in-market location, certain costs related to growth are at least partly variable, such as employee-related expenses, while others, like rent and utility costs, tend to be fixed.

As a result, it has been shown that as an in-market location increases its sales base over time it typically will achieve a higher operating profit margin.

This ability to increase our operating profit margin is influenced by:

There are many reasons why local or regional management might decide to close a location.

We utilize additional types of selling locations within our network, but these tend to be more specialized in nature and relatively few in number, comprising less tha n five percent of our total selling locations.

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While there are isolated exceptions, these technologies are not themselves channels to the market but rather are utilized by our branch and Onsite channels to enhance service to our customers.

Collectively, these tools form our Fastenal Managed Inventory (FMI) capabilities.

Collectively, these tools comprise our Fastenal Managed Inventory (FMI) Technology suite.

We believe our fully integrated distribution network allows us to manage the supply chain for all sizes of customers.

FMI programs tend to generate a higher frequency of business transactions and, coupled with our fully integrated distribution network, foster a strong relationship with customers.

We introduced industrial vending (FAST Vend) in 2008 to provide our customers with improved product monitoring and control.

Bin stock (FASTStock ℠ and FASTBin ℠ ) programs, where product is held in bins in a customer facility, is similar to our vending business in that it involves moving product closer to the point of customer use within their facilities.

Such programs have existed in the industrial supply industry for a considerable time, with open bins being clustered in a racking system, each of which holds original equipment manufacturing (OEM) fasteners, MRO fasteners, and/or non-fastener products that are consumed in the customers' operations.

Historically, these bins were simply plastic and metal containers that held product and were visually inspected by our customers or Fastenal personnel to determine replenishment need.

These bins in some cases are organized and labeled into customer plan-o-grams, which we call FASTStock and allow for the scanning of product when product is at a minimum desired level.

However, in 2019 we introduced our FASTBin technology.

FASTBin is the evolution of FASTStock into a set of electronic inventory management solutions that automate process controls by providing 24/7 continuous inventory monitoring, real-time inventory visibility, and more efficient replenishment of bin stock parts.

These technologies come in three forms:

(1) Scales utilize a high-precision weight sensor system to measure the exact quantity on hand in real time, automatically sending an order to Fastenal when inventory hits an established minimum.

(2) Infrared uses infrared sensors lining individual bins to provide real-time visibility of approximate quantity and inventory values, automatically sending an order to Fastenal when inventory hits an established minimum threshold.

(3) RFID is a Kanban system that utilizes RFID tags so that when an empty bin is removed from the rack and placed in a replenishment zone (also part of the same racking system) an automatic refill order is generated.

These technologies provide superior monitoring capabilities and immediate visibility to consumption changes, allowing for a lean supply chain, reducing risk of stock-outs, and providing a more efficient labor model for both the customer and the supplier.

Industrial vending (FASTVend ℠ ) was introduced in 2008 to provide our customers with improved product monitoring and control.

Benefits include reduced consumption, reduced purchase orders, reduced product handling, and 24-hour product availability, and we believe our company has a market advantage by virtue of our extensive in-market network of inventory and local personnel.

For these reasons, the initiative began to gain significant traction in 2011 and we finished 2020 with approximately 110,700 devices in the field (approximately 15,000 of which relate to a locker lease program with a specific retail customer).

Our discussion generally focuses on the approximately 95,700 product revenue devices.

For these reasons, the initiative began to gain significant traction in 2011 and we finished 2021 with approximately 101,600 FASTVend non-weighted devices in the field, which excludes approximately 12,000 non-weighted vending devices that are part of a leased locker program with a specific retail customer.

We believe industrial vending has proven its effectiveness in strengthening our relationships with customers and helped to streamline the supply chain where it has been utilized.

We also believe there remains considerable room to grow our current installed base before it begins to approach the number of units we believe the market can support.

We estimate the market could support as many as 1.7 million industrial vending devices and, as a result, we anticipate continued growth in installed devices over time.

We estimate the market could support as many as 1.7 million vending units and, as a result, we anticipate continued growth in installed devices over time.

Our industrial vending portfolio consists of 24 different vending devices, with 17 of these being in either a helix or locker format.

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combined, these comprise approximately 68% of our installed base of devices.

These are either configurable or are available in multiple configurations to accommodate the various sizes and forms of products that will be dispensed to match the unique needs of our customers.

These are either configurable or are available in multiple

configurations to accommodate the various sizes and forms of products that will be dispensed to match the unique needs of our customers.

Target monthly revenues per device typically range from under $1,000 to in excess of $3,000, with our flagship FAST 5000 device having a targeted monthly throughput of $2,000.

Bin stock (FAST Stock and FAST Bin) programs, where product is held in bins in a customer facility, is similar to our vending business in that it involves moving product closer to the point of customer use within their facilities.

Such programs, which we call FAST Stock, have existed in the industrial supply industry for a considerable time, with open bins being clustered in a racking system, each of which holds original equipment manufacturing (OEM) fasteners, maintenance, repair, and operations (MRO) fasteners, and/or non-fastener products that are consumed in the customers' operations.

Historically, these bins were simply plastic containers that held product and were visually inspected by our customers or Fastenal personnel to determine replenishment need.

These bins in some cases are organized and labeled into customer plan-o-grams which allow for the scanning of product when product is at a minimum desired level.

However, in 2019 we introduced our FAST Bin technology, which we began to more aggressively commercialize in 2020.

FAST Bin is the evolution of FAST Stock into a set of electronic inventory management solutions that automate process controls by providing 24/7 continuous inventory monitoring, real-time inventory visibility, and more efficient replenishment of bin stock parts.

These technologies come in three forms:

(1) Scales utilize a high-precision weight sensor system to measure the exact quantity on hand in real time, automatically sending an order to Fastenal when inventory hits an established minimum.

These technologies provide superior monitoring capabilities.

These capabilities provide immediate visibility to consumption changes, allowing for a lean supply chain, avoiding stock outs, and providing a more efficient labor model for both the customer and the supplier.

We plan on changing our reporting of FMI beginning in 2021.

Historically, we have reported only on FAST Vend.

However, the development and commercialization of FAST Bin and its digital capabilities, combined with industrial vending, provides us with a broader suite of tools with which to best manage our customers' product consumption and fulfillment, which we believe

will enhance our ability to manage and grow our OEM and MRO fasteners, hydraulics and pneumatics, and other product offerings.

Further, we view the value-add offered to our customers by FAST Bin as it relates to product monitoring and data collection to be comparable to our industrial vending solution.

As a result, beginning in 2021, we will begin to report 'Weighted FMI Device' signings and installations, which is the combined activity of FAST Vend and FAST Bin converted into a comparable unit of measure, or 'machine equivalent unit' (MEU).

Beginning in 2020, we began to report 'Weighted FMI Device' signings and installations, which is the combined activity of FASTBin and FASTVend converted into a comparable unit of measure, or 'machine equivalent unit' (MEU).

This conversion takes the targeted monthly throughput of each FMI device signed or installed and compares it to the $2,000 target monthly throughput of our FAST 5000 vending device.

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In 2022, we anticipate weighted FMI device signings to be in a range of 23,000 to 25,000 MEUs.

Similar to Onsite, however, we recognize that achieving the goal will be challenging, as the continued prevalence of COVID-19 infections has made gaining access to customer facilities and decision-makers difficult.

The tables below contain information on how the presentation of weighted FMI devices differs from the industrial vending information (product revenue devices) on signings and installations that we have previously provided.

Q1 Q2 Q3 Q4 Annual

Vending device count signed during the period 2020 4,798 3,483 4,680 3,456 16,417

2019 5,603 5,439 5,671 5,144 21,857

2018 5,679 5,537 5,877 4,980 22,073

Machine equivalent vending count signed during the period 2020 4,561 3,362 4,515 3,279 15,717

2019 5,213 5,058 5,354 4,938 20,563

2018 5,271 5,250 5,251 4,610 20,382

Machine equivalent FMI devices signed during the period 2020 4,564 3,364 4,517 3,279 15,724

2019 5,213 5,075 5,364 4,941 20,593

2018 5,271 5,250 5,251 4,610 20,382

Vending device count installed at the end of the period 2020 92,124 92,615 94,395 95,733

2019 83,410 85,871 88,327 89,937

2018 73,561 76,069 78,706 81,137

Machine equivalent vending count installed at the end of the 2020 79,230 80,123 82,236 83,802

period 2019 69,258 71,942 74,686 76,792

2018 58,571 61,405 64,205 66,784

Machine equivalent FMI devices installed at the end of the 2020 79,233 80,128 82,243 83,809

period 2019 69,258 71,959 74,713 76,822

2018 58,571 61,405 64,205 66,784

Similar to Onsite, we believe the marketplace can support at least this level of signings annually, though we did not achieve it in 2021 as variables including the ongoing COVID-19 pandemic, supply chain constraints, and labor shortages created challenges in our ability to engage with key decision makers and caused many of our customers to focus on short-term crisis management rather than long-term strategic planning.

These conditions remain in force at the beginning of 2022.

We acknowledge that achieving this may require some relief in the factors that negatively impacted our efforts in the preceding two years.

The table below summarizes the signings and installations of, and sales through, our FMI devices.

Twelve-month Period

2021 2020 Change

Weighted FASTBin/FASTVend signings (MEUs) 19,311 16,503 17.0 %

Signings per day 76 65

Weighted FASTBin/FASTVend installations (MEUs;

end of period) 92,874 83,951 10.6 %

FASTStock sales $ 587.6 $ 323.0 81.9 %

% of sales 9.7 % 5.7 %

FASTBin/FASTVend sales $ 1,353.7 $ 1,064.4 27.2 %

% of sales 22.3 % 18.6 %

FMI sales $ 1,941.3 $ 1,387.4 39.9 %

FMI daily sales $ 7.7 $ 5.4 41.0 %

% of sales 32.0 % 24.3 %

Digital Solutions

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1.) Transactional.

Our transactional, or e-commerce, platforms (web verticals or integrated catalogs) provides a means for our customers to effectively and efficiently procure MRO and unplanned spend.

One of our e-commerce solutions, Fastenal EXPRESS, guides our customers to products which are locally stocked, capitalizing on our existing location footprint, in order to provide same-day or early next-day service for online orders.

Our transactional, or eCommerce, platforms (web verticals or integrated catalogs) provides a means for our customers to effectively and efficiently procure MRO and unplanned spend.

One of our eCommerce solutions, Fastenal EXPRESS, guides our customers to products which are locally stocked, capitalizing on our existing location footprint, in order to provide same-day or early next-day service for online orders.

This positions us to outperform what is most typically a 24- to 48-hour fulfillment expectation.

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It provides easy, real-time information pertaining to a customer's local inventory position within their point-of-use devices.

incorporates customer usage data to recommend optimized parts and quantity for specific devices, improving customer inventories while reducing stock-outs.

Moving our fulfillment process from a vending device-based keypad function to a tablet or scanning interaction improves the restock process, reducing time consumed (greater efficiency) while improving accuracy (improved quality assurance).

We will continue to build out our suite of apps.

It incorporates customer usage data to recommend optimized parts and quantity for specific devices, improving customer inventories while reducing the risk of stock-outs.

Moving our fulfillment process from a vending device-based keypad function to a tablet or scanning interaction improves the restock process (reduced risk of product outages), reducing time consumed (greater efficiency) while improving accuracy (improved quality assurance).

We will continue to build out our suite of Mobility applications.

We also have 'eProcurement Solutions'.

Electronic Data Interchange (EDI), is the connectivity between our system and our customers' procurement systems – whether a direct integration into their Enterprise Resource Planning (ERP) system or through a third-party procurement network or marketplace.

These solutions provide system-to-system exchange of electronic procurement documents (such as purchase orders, advanced shipping notices, and invoices for direct and indirect spend).

These solutions provide system-to-system exchange of electronic

procurement documents (such as purchase orders, advanced shipping notices, and invoices for direct and indirect spend).

Our eProcurement Solutions provide a bridge between our FMI replenishment activity and our customers' procurement systems – creating an efficient, accurate and streamlined procure-to-pay (P2P) process.

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FAST 360° surfaces data around these managed services as one central source of information as we manage our customers' OEM and MRO product lines.

This is achieved through our FMI technologies providing locational data around our FAST Vend, FAST Bin, and FAST Stock footprint, and FAST 360 being the means of surfacing that data and activities to our customers.

This is achieved through our FMI technologies providing locational data around our FASTStock, FASTBin, and FASTVend footprint, and FAST 360° being the means of surfacing that data and activities to our customers.

3.) Analytics.

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We bring value to our customers, as well as ourselves, by using these digital platforms and analytics to shift product from a 'non-sticky' transactional environment (which is online) to a 'sticky' strategic environment (which is our FMI programs).

We create customer cost savings opportunities through this directive by lowering the total cost of ownership (TCO) as the objective is to 'shrink' the unplanned – high cost – purely transactional spend bucket.

We believe our integrated physical and virtual model, when paired with our national (and increasingly international) scope, represents a unique capability in industrial distribution when compared to e-commerce as an independent sales channel.

We create customer cost savings opportunities through this directive by lowering the total cost of ownership (TCO) as the objective is to 'shrink' the unplanned (and traditionally high cost), purely transactional spend bucket.

Digital Footprint

We view our collective Digital Footprint as comprised of sales through FMI (FASTStock, FASTBin, and FASTVend) plus that proportion of our eCommerce sales that do not represent billings of FMI services.

We believe the data that is created through our digital capabilities enhances product visibility, traceability, and control that reduces risk in operations and creates ordering and fulfillment efficiencies for both ourselves and our customers.

As a result, we believe our opportunity to grow our business will be enhanced through the continued development and expansion of our digital capabilities.

Our Digital Footprint represented 42.7% of sales in 2021, the first year in which we explicitly measured it.

We expect to continue to build out and develop our digital solutions over time.

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Combined with ongoing strategic investments in end market initiatives as well as selling (in-market and otherwise) and non-selling (engineering, product specialists, manufacturing, etc.) employees, we offer a range of capabilities that is difficult for large and small competitors to replicate.

Distribution Network

We operate fifteen regional distribution centers in North America.

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These eleven distribution centers operate with greater speed and efficiency, and currently handle approximately 95% of our picking activity.

We expect to add and/or expand new distribution centers over time as our scale and the number of our in-market locations increases.

Our information systems team develops, implements, and maintains the computer based technology used to support business functions within Fastenal.

We expect to invest in additional automation technologies, expand existing distribution facilities, and/or add new distribution centers over time as our scale and the number of our in-market locations increases.

In 2018, we began to deploy Local Inventory Fulfillment Terminals (LIFTs).

These are small distribution facilities situated where we have a dense population of FMI devices.

Traditionally, responsibility for product fulfillment to vending devices and bin stocks have centered on individual branches, which were responsible for stocking and packaging inventory, delivering to a customer's location, and refilling the customer's devices.

As our sales from FMI devices have grown, this approach has resulted in redundant inventory in a territory and a greater proportion of our sales personnel's time being spent on non-sales activities.

By centralizing inventory and packaging into a LIFT and relying on dedicated LIFT fulfillment personnel for delivery and device replenishment, which we refer to as 'drop-and-scatter', we can reduce FMI-dedicated inventory, provide more consistent and predictable service to our customer's FMI devices, and free up time for our sales personnel to focus on customer penetration

and acquisition.

Our transportation network allows us to expand the geographic reach of our LIFTs by deploying a 'drop-and-deliver' model.

In this case, a LIFT is responsible for stocking and packaging, with the inventory and accuracy benefits that come with that focus, but the delivery and replenishment continues to be performed by local branch personnel.

As the economics of a LIFT depend on device and sales density, there will be geographic areas, particularly in non-MSAs, where supporting an FMI platform will remain the responsibility of local branch personnel.

In 2021, less than 5% of our FMI revenue was serviced through a LIFT, but over time we believe this figure can approximate 40% of our FMI revenue.

Information Systems

Our Information Systems teams develop, implement, secure, and maintain the computer-based technology used to support business functions within Fastenal.

Corporate, digital, distribution center, and vending systems are primarily supported from central locations, while each selling location uses a locally installed Point-Of-Sale (POS) system.

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Trademarks and Service Marks

We conduct business under various trademarks and service marks, and we utilize a variety of designs and tag lines in connection with each of these marks, including Growth Through Customer Service ® .

We conduct business under various trademarks and service marks, and we utilize a variety of designs and tag lines in connection with each of these marks, including Where Industry Meets Innovation ™ .

Although we do not believe our operations are substantially dependent upon any of our trademarks or service marks, we consider the 'Fastenal' name and our other trademarks and service marks to be valuable to our business.

We have registered, or applied for the registration of, various

trademarks and service marks.

We have registered, or applied for the registration of, various trademarks and service marks.

Our registered trademarks and service marks are presumed valid in the United States as long as they are in use, their registrations are properly maintained, and they have not been found to have become generic.

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This includes threaded fasteners, bolts, nuts, screws, studs, and related washers, as well as miscellaneous supplies and hardware, such as pins, machinery keys, concrete anchors, metal framing systems, wire rope, strut, rivets, and related accessories.

Our fastener product line, which is primarily sold under the Fastenal product name, represented 29.9%, 34.2%, and 34.9% of our consolidated net sales in 2020, 2019, and 2018, respectively.

Our fastener product line, which is primarily sold under the Fastenal product name, represented 33.3% of our consolidated net sales in 2021.

Fastener distribution is complex.

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These features have greatly influenced our logistical development, training and educational programs, support capabilities, and inventory decisions, which we believe would be difficult for competitors to replicate.

In 1993, we began to aggressively add additional product lines, and these represented 70.1%, 65.8%, and 65.1% of our consolidated sales in 2020, 2019, and 2018, respectively.

In 1993, we began to aggressively add additional product lines, and these represented 66.7% of our consolidated sales in 2021.

These products, which we refer to as non-fastener product lines, tend to move through the same distribution channel, get used by the same customers, and utilize the same logistical capabilities as the original fastener product line.

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For instance, non-fastener product lines benefit disproportionately from our development of industrial vending.

The most significant category of non-fastener products is our safety supplies product line, which accounted for 25.5%, 17.9%, and 17.2% of our consolidated sales in 2020, 2019, and 2018, respectively.

The most significant category of non-fastener products is our safety supplies product line, which accounted for 21.2% of our consolidated sales in 2021.

This product line has enjoyed dramatic sales growth in the last ten years which we believe is directly attributable to our success in industrial vending over that period.

The exception to this is the significant increase in safety sales as a percentage of consolidated net sales in 2020, which is directly attributable to dramatic increases in demand for personal protective equipment (PPE) in response to the COVID-19 pandemic in that year.

Our tools product line represented approximately 8.2%, 9.9%, and 10.0% of consolidated net sales in 2020, 2019, and 2018, respectively.

The COVID-19 pandemic uniquely impacted our safety supplies product line.

In 2020, we saw substantial growth based on our ability to quickly source and deliver supplies, such as disposable masks, gloves, and gowns that were critical for governments, health care providers, and businesses to increase employee safety while maintaining operations.

In 2021, we experienced a decline as better industrial growth was more than offset by a decline in demand for pandemic-related supplies that reflected the stabilization of the supply chain for critical products.

Going forward, we expect traditional variables such as market performance, cross-selling, and vending adoption to be the primary drivers of performance for our safety supplies product line.

However, we also believe the net effect of the pandemic has been to increase safety products as a percentage of product sales as safety protocols at many of our customers are likely to be sustained into the future.

In the last several decades we have added 'private label' brands (often referred to as 'Exclusive Brands', or brands sold exclusively through Fastenal) to our non-fastener offering.

These private label brands represented approximately 13% of our consolidated net sales in each of 2020, 2019, and 2018.

These private label brands represented approximately 13% of our consolidated net sales in 2021.

We believe it is also appropriate to think about our private label sales as a percentage of our non-fastener sales for two reasons:

(1) branded vs.

private label dynamics of fasteners differ from those of non-fasteners;

(1) there is not a well-defined branded vs.

private label dynamic in fasteners as there is in non-

and (2) non-fastener data is more comparable to information reported by our peers, who do not generally have our significant mix of fastener business.

Private label brands represented approximately 18%, 19%, and 19% of our total non-fastener sales in 2020, 2019, and 2018, respectively.

Our percentage of private label brand sales as a percentage of our total non-fastener sales in 2020 declined due to strong growth of COVID-related PPE, which was not sold under a private label brand, while demand was weak for other safety products, many o f which are marketed under a private label brand and were more greatly affected by economic weakness in our traditional manufacturing and construction customers.

Prior to 2020, we generally had experienced increases in sales of private label products as a percentage of total non-fastener sales when looking at specific sales channels such as Onsite locations, branches, and vending.

However, these increases were masked by the relative sales growth we were experiencing with Onsite locations, which typically have a lower percentage of total sales being private label than is the case in branches or sales through vending devices.

Private label brands represented approximately 20% of our total non-fastener sales in 2021.

Our private label brand sales as a percentage of our total non-fastener sales declined in 2020, reflecting strong growth of COVID-related supplies, which were not sold under a private label brand, and recession-related weak safety demand from traditional manufacturing and construction customers, many of which are marketed under a private label brand.

The performance of our private label brands in 2021 more closely resembled trends that preceded 2020, where we have typically experienced an increase in sales of private label products as a percentage of total non-fastener sales through specific sales channels such as Onsite locations, branches, and vending.

Often, these increases through specific channels are masked by the relative sales growth we experience with Onsite locations, which typically have a lower percentage of total sales being private label than is the case in branches or sales through vending devices.

We plan to continue to add other product lines in the future.

Detailed information about our sales by product line is provided in Note 3 of the Notes to Co nsolidated Financial Statements included later in this Form 10-K.

Detailed information about our sales by product line is provided in Note 2 of the N otes to Co nsolidated Financial Statements included later in this Form 10-K.

Each product line may contain multiple product categories.

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The computer system monitors the inventory level for all stock items and triggers replenishment, or prompts a buyer to purchase, as necessary, based on an established minimum-maximum stocking level.

All branches stock a base inventory and may expand beyond preset inventory levels as

deemed appropriate by the district and branch personnel.

All branches stock a base inventory and may expand beyond preset inventory levels as deemed appropriate by the district and branch personnel.

Non-branch selling locations (primarily Onsites) stock inventory based on customer-specific arrangements.

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Inventory quantities are continuously re-balanced utilizing an automated transfer mechanism we call 'inventory re-distribution'.

Inventory held at our selling locations, close to customers and available on a same-day basis, accounted for approximately 59%, 60%, and 61% of our total inventory at the end of 2020, 2019, and 2018, respectively.

Inventory held at our distribution centers and manufacturing locations accounted for approximately 41%, 40%, and 39% of our total inventory at the end of 2020, 2019, and 2018, respectively.

Inventory held at our selling locations, close to customers and available on a same-day basis, accounted for approximately 57% of our total inventory at the end of 2021.

Inventory held at our distribution centers and manufacturing locations accounted for approximately 43% of our total inventory at the end of 2021.

The distribution center and manufacturing location inventory, when combined with our trucking network, allows for fast, next-day service at a very competitive cost.

Manufacturing and Support Services Operations

In 2020, approximately 96% of our consolidated net sales were attributable to products manufactured by other companies to industry standards or to customer specific requirements.

The remaining 4% related to products manufactured, modified, or repaired by our manufacturing businesses or our support services.

In 2021, a pproximately 96% of our consolidated net sales were attributable to products manufactured by other companies to industry standards or to customer specific requirements.

The remaining 4% relate d to products manufactured, modified, or repaired by our manufacturing businesses or our support services.

The manufactured products consist primarily of non-standard sizes of threaded fasteners and hardware made to customers' specifications at one of our nine manufacturing locations, or standard sizes manufactured under our Holo-Krome ® , Cardinal Fasteners ® , and Spensall ® product lines.

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Within Asia, suppliers in China represent a significant source of product.

Further, in many cases where we source directly from a North American supplier, the original country of origin of the acquired parts is the supplier's Asian facilities.

As a result, the cost and effectiveness of our supply chain is dependent on relatively unfettered trade across geographic regions.

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Based on our customer profile being oriented toward manufacturing and non-residential construction, our business has historically been cyclical.

However, we believe our model has certain protections that moderate the volatility of our results around cyclical changes.

First, we have a large number of customers that serve a wide range of segments within the broader manufacturing and non-residential construction market, although slumps in one industry served by us can rapidly spread to other, interrelated industries, locally or globally.

However, we still believe this customer and market segment diversity provides some insulation from economic changes that are not across multiple industries and geographic regions.

In addition, while a meaningful part of our revenue is derived from products that are incorporated into final products, we also have a significant portion of revenue that is derived from products used to maintain facilities.

However, we believe our model has certain features that moderate the volatility of our results around cyclical changes.

First, we have a large number of customers that serve a wide range of segments within the broader manufacturing and non-residential construction market.

While slumps in one industry served by us can rapidly spread to other, interrelated industries, locally or globally, we still believe this customer and market segment diversity provides some insulation from economic changes that are not across multiple industries and geographic regions.

Second, while a meaningful part of our revenue is derived from products that are incorporated into final products, we also have a significant portion of revenue that is derived from products used to maintain facilities.

This latter source of revenue tends to be directly influenced by cyclical changes, but its rate of change tends to be less dramatic.

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We believe our local presence as part of a national, and increasingly international, footprint, our ability to provide a consistent level of high-touch service and broad product availability, and our ancillary capabilities around manufacturing, quality control, and product knowledge, are attractive to these larger customers.

We believe our advantage with

these customers has only been strengthened as we have added other channels, such as Onsite, FMI, digital solutions, and resources to serve these customers' unique demands.

We believe our advantage with these customers has only been strengthened as we have added other channels, such as Onsite, FMI, digital solutions, and resources to serve these customers' unique demands.

As a result, in 2021, national accounts represented 56.6% of our sales, compared to 55.0% and 53.6% in 2020 and 2019, respectively.

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Customers often have more than one active account at a single in-market location, reflecting their utilization of different Fastenal services, and frequently have active accounts at many in-market locations across our global network.

During the fourth quarter of 2020, our total number of active customer account s (defined as accounts having purchase activity totaling at least $100 within the last 90 days) was approximatel y 218,000, while our total 'core accounts' (defined as the average number of accounts with purchase activity of at least $500 per month within the last 90 days) was approximately 77,000.

During 2020, we had a single customer that represented 5% of our consolidated net sales, whereas all remaining customers fell below that threshold.

During both 2019 and 2018, no single customer represented 5% or more of our consolidated net sales.

During 2021, our total number of active customer accounts (defined as the average number of accounts per month with purchase activity of at least $100) was approximately 132,000, while our total 'core accounts' (defined as the average number of accounts per month with purchase activity of at least $500) was approximately 77,000.

During 2021, no single customer represented 5% or more of our consolidated net sales.

Direct marketing continues to be the backbone of our business through our local in-market selling personnel, as well as our non-branch selling personnel.

We support our sales team with multi-channel marketing including direct mail and digital marketing, print and radio advertising, targeted campaigns, promotional flyers, and events.

In recent years, our national advertising has been focused on a NASCAR ® sponsorship through our partnership with Roush Fenway Racing ® as the primary sponsor of the No.

In recent years, our national advertising has been focused on a NASCAR ® sponsorship through our partnership with Roush Fenway Keselowski Racing ® as the primary sponsor of the No.

17 car in the NASCAR ® Cup Series, driven by Chris Buescher.

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For instance, many competitors maintain a local, branch-based presence in their markets, while others use vans to sell products in markets away from their main warehouses, while still others rely on catalogs or telemarketing sales.

Recent years have seen the emergence of e-commerce solutions, such as websites, and while this channel has been embraced by many traditional distributors it also has introduced non-traditional, web-based competitors into the marketplace.

Recent years have seen the emergence of eCommerce solutions, such as websites, and while this channel has been embraced by many traditional distributors it also has introduced non-traditional, web-based competitors into the marketplace.

The diversity of product and service models supported in the marketplace is a reflection of the equally diverse product and service needs of the customer base.

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The convenience of a large number of branches in a given area, combined with our ability to provide frequent deliveries to such branches from centrally located distribution centers, facilitates the prompt and efficient distribution of products.

We also believe our industrial vending and bin stock solutions, supported from an in-market location, provides a unique way to provide our customers convenient access to products and cost saving solutions using a business model not easily replicated by our competitors.

We also believe our FMI solutions, supported by an in-market location, provides a unique way to provide our customers convenient access to products and cost saving solutions using a business model not easily replicated by our competitors.

Having trained personnel at each in-market location also enhances our ability to compete (see 'Employees' below).

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We characterize these personnel as follows:

2021 % of Total 2020 % of Total

In-market locations (branches & Onsites) 12,464 60.8 % 12,680 62.3 %

Non-in-market selling (1)

2,106 10.3 % 1,952 9.6 %

Selling subtotal 14,570 71.0 % 14,632 71.8 %

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Administrative (2)

1,613 7.9 % 1,511 7.4 %

Non-selling subtotal 5,937 29.0 % 5,733 28.2 %

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(2) Administrative primarily includes our Sales Support, Information Technology, Finance and Accounting, Human Resources, and senior leadership roles and functions.

Our administrative employee count has also grown in recent years due to an increased focus on technology capabilities.

For example, 66.7% of the increase in administrative employees in 2020 over 2019 related to our additions to our information technology teams.

Our administrative employee count has also grown in recent years due to increased personnel investments in information technology and operational support, such as purchasing and product development.

Employee Profile

As of December 31, 2021, we had 20,507 employees worldwide, with 16,548 of those employees located within the United States (U.S.), 2,568 employees located in Canada and Mexico, and 1,391 employees located overseas in 22 other countries throughout the world.

Approximately 72% of our employees maintain customer-facing sales roles, directly interacting with our customers on a daily basis from one of our 3,268 in-market locations.

The remaining population of our workforce comprise our in-house manufacturing capabilities (3.1%), our captive transportation and distribution functions (17.6%), and our administrative support functions (7.4%), supporting our sales force and continuing to drive value for our customers.

Based on our 2019 EEO-1 data, which is our most recently filed information, in the United States females and minorities constitute 24.5% and 20.9% of our workforce, respectively.

Based on our EEO-1 data for 2020, which is the most recent period for which data is available and our most recently filed information, in the United States females and minorities constitute 24.4% and 20.5% of our workforce, respectively.

Based on U.S.

Bureau of Labor Statistics data, we believe Fastenal’s mix of female and minority employees is consistent with, if not higher than, the proportion of females and minorities working in manufacturing and construction, which is representative of the pool of employees from which we might draw candidates.

Relative to 2012, our female and minority workforces have grown 2.2x and 3.0x faster, respectively, than our overall U.S.

Bureau of Labor Statistics data, we believe Fastenal's mix of female and minority employees is generally consistent with the proportion of females and minorities working in manufacturing and construction, which is representative of the pool of employees from which we might draw candidates.

The proportion of females and minorities in our workforce declined slightly in 2020.

It is difficult to know what the impact was from the severe social disruption in the period caused by COVID-19.

Generally, though, we believe this data is best viewed over time rather than year-to-year.

On this basis, there is a clear trend toward greater diversity in our business.

In the eight years since 2012, our female and minority workforces have grown 2.7x and 3.8x faster, respectively, than our overall U.S.

This trend reflects multiple dynamics in our business evolution, including the natural progression of our geographic expansion, the cycle of our promote-from-within philosophy, and efforts to improve hiring processes over time.

Health and Safety

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In 2021, the most recent year for which this figure has been calculated, Fastenal had an EMR of 0.45, which is 55% better than the average performance rate for our industry.

2020 was unique for the impact that the COVID-19 pandemic had on organizations, including ours.

Our response has consistently evolved to meet the turbulent environment:

• The business continuity team implemented regular communication regarding impacts of the COVID-19 pandemic, including health and safety protocols and procedures.

• Implementing a hierarchy of controls to address hand washing, social distancing, cleaning areas and frequency, personal protective equipment and resources to stay up to date on the changing conditions.

• Deployment of face covers, dispensed through our vending technology, across the company for use in areas where they are required and recommended.

• Prohibiting all domestic and international non-essential travel for all employees.

• Providing additional days of leave for full- and part-time employees to cope with the illness.

• Restricting access to our non-public facilities such as corporate offices, distribution centers, sales offices, and manufacturing locations.

• Providing public branch access by appointment or pickup only in high risk areas.

• Implementation of risk assessments in critical operating facilities.

• Implementing protocols to address actual and suspected COVID-19 cases and potential exposure.

• Working closely with customers to meet their specific COVID-19 requirements and maintain service.

• Providing all of our employees with frequent updates to share stories of how we were helping customers and each other, disclosing COVID-19 statistics within the organization.

We understand the benefits of employee health and safety and continue to invest in programs, products, and resources.

We also understand the environment of trust and fairness that exists when information is openly shared.

As an essential provider of personal protective equipment to critical customers, we also continue to invest in products and services to meet the health and safety needs of our customers and communities.

In 2021, EHS Today , a health and safety trade organization, recognized Fastenal as one of 'America's Safest Companies', an award received by just over 250 companies since 2002.

According to EHS, this honor reflects:

support from leadership for health and safety efforts;

employee involvement in health and safety processes;

innovative solutions to safety challenges;

comprehensive training programs;

evidence that incident prevention is the cornerstone of the safety process;

good communication about the value of safety;

a way to substantiate the benefits of the safety process;

and injury and illness rates below the industry average.

This recognition reflects the priority that members of our organization place on health and safety.

Employment and Compensation Philosophy

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find great people, ask them to join, and give them a reason to stay.

Reasons include training, opportunity, and a welcoming environment.

Reasons to stay include training, opportunity, and a welcoming environment.

From a practical standpoint, this means that we attract a broad group of candidates and then hire the candidate who is the best match for the position based on their skills and abilities.

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Supply chain compliance representatives are placed in international corporate offices to ensure global coverage and governance, ensuring that no matter where a customers' operations may take them, Fastenal has the infrastructure, resources, and internal processes established to perform its supply chain governance obligations.

In 2021, approximately 33% of our total company-wide inventory spend was with small and/or diverse businesses.

This flows from our Supplier Diversity program, as part of which we are committed to building supply chain relationships with small businesses and businesses with diverse ownership including women, minorities, veterans, and lesbian, gay, bisexual, and transgender (LGBT) owned Certified LGBT Business Enterprise ® Suppliers.

Available Information

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business